Gulf News – I spend a lot of money and end up in debt in Dubai: How I survive, save myself from trouble

Tania was a natural spender. When it comes to money, she was always out of control. As long as the ATM machine spit out cash and the credit card limit wasn’t exhausted, she stopped at nothing.

The Filipino expatriate arrived in Dubai over ten years ago and landed a job in sales. A few months into her first-ever job overseas, she gifted herself a brand-new laptop and started getting used to an expensive lifestyle.

Her obsession with brands naturally went up a notch, with pretty much every premium brand imaginable now within easy reach. She’d happily take home luxury perfumes, shoes and some new clothes at any given day, without worrying so much about her bank balance.

When she flew back home for the first time, she got super excited to see the family that her spending went out of control. In just about two weeks, she blew away Dh25,000.

There were some fancy dinners bought, as well as family outings to theme parks and hotel room bookings made. At one point of the trip, she racked up approximately Dh3,000 in bills in one day.

“That’s what I used to do on family vacations. Every time I go home, I’d go into a spending spree,” she said.

“I’m used to not worry about money. That’s how I was brought up, so I never scrimped on stuff. I just kept spending,” she added.

But lest you think she’s some kind of a rich kid burning her parents’ money, Tania confessed that she’s barely making ends meet in Dubai. Her less than Dh5,000 monthly salary was hardly enough to afford her a studio flat to live alone in.

So, where did she get all that money to pay for a lavish vacation and occasional indulgences? “I borrowed money. About a few months into my job, I secured a Dh25,000 loan and I used that when I went on a vacation,” she said.

“That’s what I used to do all the time. I always made sure to get a loan before each trip so that I had some cash to use. And even when I wasn’t on vacation, I didn’t mind my spending, especially when there’s a sale going on, which was when I’d happily swipe my card,” she said.

Realisation

Not much has changed about the way Tania handles her financial affairs since then, until recently. She lately struggled to keep up with the monthly payments on her two credit cards. The interest charges on a loan she also took out in the Philippines a year ago were beginning to mount.

“I struggled to pay up my financial obligations. I ended up borrowing money from friends. There was a time I was ashamed to ask for another favour, I was fed up,” she said.

It quickly dawned on her that in the more than a decade that she had lived abroad, all that she had ever built was a pile of debt, and her bank account was nothing to be proud of.

She had not really saved much, except for the Dh7,200 she managed to deposit in National Bonds. It was then when she felt like she had hit a bottom financially. And there was a realisation that she needed to do something to reduce her spending to the bone and kick-start the habit of saving.

It’s a universal problem

Tania is not alone. Research shows that a lot of expatriates who have been living overseas for quite sometime don’t have much savings.

A survey of more than 1,000 people in the Gulf region, conducted by National Bonds, showed that nearly nine out of ten (85 per cent) respondents in the UAE feel they are not saving enough for their future. More than half (57 per cent) did say they have resolved to make an effort to set aside more money for the rainy day in 2018.

In the United States, the picture isn’t any different. Out of the 5,700 people polled by the Federal Reserve, nearly half (46 per cent) said they could not afford to pay an emergency expense of $400 (Dh1,469) without borrowing money or selling something.

“It is very common to hear from majority of the UAE residents that they always end up blowing off all of their monthly earnings,” said Vijay Valecha, chief market analyst at Century Financial.

“The inability to save is not a problem only among low-wage earners but also among the top earners. For the big earners, the problem doesn’t stem from insufficient incomes or money-related issues, but primarily from lack of financial discipline.”

The UAE is home only to 9.6 million people, majority of which are expatriates, yet there are 49 banks spread across the country. But the ubiquity of banks doesn’t mean people are really into the saving habit. On the contrary, loans are readily available and consumers have easily fallen into an expensive lifestyle.

“[The] UAE is clearly overbanked and that explains the reason for lack of financial discipline. With too much credit easily available at everyone’s disposal, people tend to over indulge in expenses and save less,” said Valecha.

Financial experts agree that failing to save is not something unique in the UAE. It’s a “universal problem,” said Andrew Scanlan, sales manager at Nexus Insurance Brokers “There are, however, certain risks associated particularly with expatriates, who often come here to better paid jobs than in their home country,” he added.

“While they settle into their new environment, they live an active social life – which can be very expensive in the UAE – buy more expensive or better quality goods and clothes. More often than not, they purchase a more expensive car than they would at home. You need only look at most social media platforms to find hundreds of posting as ‘living the dream’. Slowly the spending accumulates and before they become aware of it, they are spending all their money before the end of the month.”

How to start saving?

So, how does one start the habit of saving money? “Most people need a nudge to do the right thing, and in general, people forget that their only opportunity to save for their future,” said Scanlan.

For Tania, that “nudge” was her quickly rising personal debt levels, coupled with the fear of losing her job. “I’m hearing stories of friends getting laid off and having to go back home empty handed. That struck me and I decided to take action,” she said.

However daunting it may be, Tania faced the task of putting a lid on spending and downsizing her lifestyle.

New life

She packed her bags and moved to a cheaper apartment outside Dubai, away from all the temptations of shopping malls, fancy restaurants and night-outs.

“The reality that things aren’t doing too well is starting to sink in me, so I have to do something” she said.

She’s now more conscious of how much money goes out of her wallet and to every little thing she spends on. She now sets aside a budget every month for food, groceries, transportation, communication and debt repayments, and she makes an effort to stick to it.

“I have an excel sheet detailing my expenses and how much is left of my monthly income,” she said. She has also employed the so-called “envelope system” to maintain her budget.

Every month, she stores cash in separate envelopes for different expenses, for example, one for loan repayments, another for housing, travel, etc. And as for her two credit cards? She ditched one of them and kept the other only for important purchases.

Outings with friends are also being kept to a minimum and buying expensive gadgets like a new iPhone has taken a break. “I used to upgrade to a new unit whenever Apple releases a new one. That has changed. I haven’t bought a new phone for two years now.”

“If there’s a sale at the mall, I don’t go anymore. If I get invited by my friends to eat outside, I keep a close watch on how much money I spend. When I go to the grocery, I’d go for the deals section. And whenever I travel back home, I don’t take out a loan anymore. I spend only what I have and can afford,” she added.

Little changes matter a lot

Bastien, an expatriate from Europe, have also trimmed down his expenses. He decided to do something about his lavish lifestyle after he recently lost his job in the financial services industry.

“Before, I used to take my car wherever I went. Now, I’m taking the Metro,” he said. Grocery trips, out-of-home meals, dinners and outings have also been drastically reduced.

“There are small things I do here and there that contribute to the overall reduction in my monthly expenditures.” For example, when he spends hours working at a café, he has learned to resist the temptation of refilling every empty cup of espresso.

“I take a tumbler with me and fill it with homemade coffee, so that I don’t have to order every time,” he said in jest. And when he gets invited to have breakfast or dinner outside, which happens very often, “I eat a little bit at home so I don’t end up ordering a huge meal.”

How to turn things around and start saving now

If you want to do the same thing and kick-start the habit of saving, here are some tips from financial experts:

1. Be more disciplined about your spending

Break down your spending into different categories. The “essentials” should be for rent, school fees and other fixed expenses, while the “must have” can include the money required for the savings pot, food and clothes, while the “nice to have” can cover expenses for entertainment, weekend trips and holidays, designer clothes or jewellery, bigger cars and other indulgences.

The money for your savings should ideally be in the “must have” category and should be prioritised over things like entertainment and designer clothes. “Significant savings can be achieved by making fewer purchases, or by choosing less expensive versions – and think about keeping to the kind of lifestyle you would have at home,” said Scanlan.

2. Save before you spend

It is important to decide on a fixed amount you want to save each month and keep it aside first before anything else. “The main reason people fail to save is that they spend first and save the surplus,” said Scanlan.

3. Automate your savings

Once you’ve decided how much money you can save every month, have it deducted from your salary automatically each month. That way, you won’t be tempted to spend it.

“Warren Buffet has rightly said that you first have to save an amount out of every pay cheque. Whatever is left will then be your spending money. Don’t do it the other way around. But you don’t have to force yourself to transfer money to savings every month,” said Valecha.

“Instead, automate the process. Set up your accounts so money is moved automatically into savings with every paycheck. The bank doesn’t put in the hours at your work, nor do they put up with your crazy boss so don’t give them first dibs on your hard earned money by using your credit cards. Pay yourself first by saving and investing before you spend the rest.”

4. Take control of your credit card

If you’re using a credit card and paying high interest payments, you’re better off ditching it. But if you must have one, ensure that all the outstanding dues, not just the minimum required payment, are fully paid.

“Never pay just the minimum payment, it is a debt trap,” said Scanlan.” Once your card debt reaches zero set up a direct debit with your bank so that you repay all spending at the end of each month. You now have credit card facilities at zero interest.”

5. Pay with cash, as much as possible

Most people just love swiping their credit cards and are unaware of how much outgoings they have racked up each month. But they should keep in mind that when using a credit card, they are actually using money they don’t have in their bank.

“This is why some of the best financial wizards advise people to spend hard cash every time, instead of using debit or credit cards. It’s a psychological thing. You tend to spend less when you have to physically pay out that cash,” said Valecha.

“If you really have to use a credit card, choose your provider wisely. Discount, cash back offers and privileges vary from bank to bank. If you choose wisely, you can make your credit card work for you, and ultimately, you get to cut down on expenses and save money.”

6. Don’t throw away your receipts.

Keep all of them, even for small stuff. This will help you keep track of your spending.

“Add them up at the end of each week. Identify the things that were not necessary (or that you regret), and use this knowledge to guide your spending in the future. Try this exercise: Write down meticulously every item you buy for one month. You will be surprised by how much money we waste on goods we never use and food we throw away. Stop those impulsive purchases. Before your next shopping trip, make a list of what you need and stick to it,” advised Scanlan.